Hospitals and other medical providers can expect to be paid by the end of August if the plan comes to fruition, said Wayne Turnage, director of the Department of Health Care Finance. But cleaning up the mess left by embattled political donorJeffrey Thompson's company will cost the city about $39 million. Federal dollars would cover the rest.

Late Wednesday, Chartered's court-appointed receiver, Daniel Watkins, agreed in principle to settle part of a $60 million complaint against the city over rates paid to Chartered and UnitedHealthcare Community Plan in prior years, Turnage said.

That settlement, which appeared dead earlier this month, will give $18 million to Chartered as well as $14 million to UnitedHealthcare, which also complained about the city's rates. Federal funds will cover 70 percent of that initial $32 million payment, costing the city $9.6 million.

If the D.C. Superior Court approves the settlement, that money will start flowing to providers in July, reducing the $47.5 million Chartered shortfall to about $29.5 million.

Then, Gray will tap the city's contingency fund to cover the remainder through direct grants. The grants will be administered by AmeriHealth D.C., a Medicaid contractor that assumed Chartered's membership in May.

Hospitals and doctors haven't been paid for the services they provided under Chartered's contract since late April, when Watkins stopped payments after it became evident the company didn't have the money for them.

"We've got an agreement in principle, and there's a lot of work to do," Watkins said.

For weeks, hospital executives and clinic administrators have become increasingly vocal in demanding a solution. Some threatened to withdraw from the Medicaid program, and others said they would be forced to shut down altogether. On Tuesday, Providence Hospital CEO Amy Freeman said the Chartered debts were a key factor driving recent layoffs.

Gray promised a solution, but it wasn't easy. The exact mechanics of the payback scheme are crucial because the federal government covers 70 percent of Medicaid bills processed through contractors such as Chartered. But the feds won't contribute to direct grants from the city to the medical providers.

The administration had sought ways to get federal funding for the entire sum, but that precluded a simple grant and would have required lengthy court proceedings. With the situation growing more dire, Turnage said, Gray decided this week to use the contingency fund with or without a settlement to pay the hospitals and doctors.

"The mayor said in unmistakeable terms that we have to protect the network of providers that the District had taken 10 to 15 years to develop," Turnage said.

Gray's decision, while surely welcomed by the private medical community, was criticized by a top aide to Councilman David Catania, I-At large, who has beseeched the administration to pursue Thompson's personal assets instead of using city funds.

The councilman "thinks it's ironic that one day after the mayor lobbied against an additional weight for poverty for our low income students in our funding formula, that he would support, less than 24 hours later, using taxpayer moony to pay Jeff Thompson's old company for the bills he didn't pay," said Catania's chief of staff Ben Young.

The city's largest medical provider, MedStar Health, has a separate claim against Chartered, now in arbitration, over $30 million in disputed payments.